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You win sum, you lose sum (but it’s still a sum)

Some construction contracts provide that expert determinations (or other alternative dispute processes) will be considered “final and binding” unless the claim or determination is excluded or carved-out.

In the matter of CPB Contractors Pty Ltd v Transport for NSW [2021] NSWSC 537, the New South Wales Supreme Court considered an expert determination clause which precluded litigation in respect of the determination, unless it:

  1. Did not involve a sum of money; or
  2. Required one party to pay the other an amount in excess of $500,000.[i]

The decision in this case was that one party was not entitled to any further payment for the Works.  Did the determination “involve” paying a sum of money?

Facts

Transport for NSW (“Transport”) engaged CPB Contractors (“CPB”) to carry out road widening works. Transport issued CPB instructions to remove excess spoil from one location to another (“Works”).

The determination concerned CPB’s entitlement to payment for the Works. Transport contended (and paid CPB) on a “Dayworks” basis which equated to $1.4 million. CPB contended that it was entitled to be paid for the Works in accordance with a schedule of rates (“Rates”) which equated to $11.4 million.

The Honourable Robert McDougall QC (“Expert”) determined that CPB was not entitled to any further payment for the Works (“Determination”).

CPB sought to litigate its claims, seeking payment in accordance with the Rates. Transport sought a stay. Transport pointed to clause 71 of the relevant GC21 Contract, arguing that the Determination was final and binding.

CPB contended that it was free to litigate the claims for the Works for two reasons.

The first was that the Expert made no determination for the purposes of the Contract.  CPB submitted there is a “deficiency or error” in the Determination, meaning it was not “a determination in accordance with the contract”.  These errors were said to include a “plainly incorrect” answer to a question referred to determination[ii], a failure to give reasons as required by the contract[iii] and a failure to answer a question at all[iv].  The first ground was specific to the facts of the case.

The second reason was that the Determination (to the extent it was a valid determination under the contract) did not “involve paying a sum of money”.

On this issue, CPB submitted that the question is what the Determination itself is and not the “matters for determination” involve.  It was argued that a determination that no money is payable is in effect a dismissal or rejection of that claim.  CPB submitted that such a decision does not and cannot involve “paying” a sum of money.

Decision

Transport’s application for a stay was granted.  CPB was precluded from litigating on the claims.

On the first ground, Stevenson J found that the Determination did not contain a deficiency or error.  The Expert’s Determination complied with the contractual requirements.

On the second ground, Stevenson J concluded that a determination dismissing a claim for money does “involve” “paying a sum of money” in the sense that it deals with the claim that, if successful, would have resulted in the paying of a sum of money; and rejects that claim.[v] The focus is not on the amount to be paid pursuant to the determination, but on the nature of the determination – i.e. whether it “involves”, in the sense of “concern” paying a sum of money.[vi] This is distinguished from a distinct category of determinations that are not in respect of money claims, such as a dispute about the construction of the contractual terms.[vii]

Therefore, in finding that the Determination did “involve the paying of sum of money”, the exception to the preclusion of litigation did not apply.

Take home tips

Dispute resolution clauses are often overlooked by parties in a contract negotiation. This case highlights that parties should carefully consider the types of disputes or claims that may be captured by a binding alternative dispute resolution process.  Parties should draft clear carve-outs from an otherwise final and binding dispute resolution clause if they wish to have recourse to the courts.

For carve-outs involving sums, consider whether the monetary thresholds are arbitrary or considered by reference to the whole of the contract sum.  Also consider whether it is the value of the claim that is of importance, or the value of the determination.

If parties wish to preserve the right to apply to the courts concerning the interpretation of a contractual term, for example, it would be prudent for the dispute resolution clause to reserve the right for an application for declaratory relief or contain a carve-out in relation to claims or disputes not involving or concerning payment of a sum.

[i] At [26] – [27].

[ii] At [47].

[iii] At [58].

[iv] At [66].

[v] At [91].

[vi] At [92].

[vii] At [94].